Want a quality dividend stock to add to your portfolio? Don't settle for risky high-yielding stocks that have double-digit payouts. Instead, consider investments that balance good yields, manageable payout ratios, strong financials, and impressive track records of dividend growth. It may not be easy to check off all those boxes, but three stocks that do are Starbucks (SBUX 0.47%), McDonald's (MCD -0.91%), and Fortis (FTS -0.66%). These stocks make for solid dividend stocks to own, and they all recently raised their payouts.
1. Starbucks
Coffee giant Starbucks provides investors with a dividend yield of 2.4%, which is higher than the S&P 500 average of 1.6%. Last month the company also announced it was increasing its dividend for the 13th straight year. The four-cent increase is a relatively modest 7.5% bump up for Starbucks, as historically it has averaged a compounded annual growth rate of 20%.
Dividend increases are discretionary, so the rate of increase can fluctuate depending on the company's financials. Currently, Starbucks has a payout ratio of 63%, which is sustainable and suggests that there's still room for more rate hikes in the future, provided that Starbucks' financials don't worsen.
With a strong business model and a loyal customer base, that isn't likely to happen. For the period ending July 2, the company reported $9.2 billion in revenue, which rose 13% year over year. Operating income of $1.6 billion increased at a rate of 22%.
For dividend investors, Starbucks can make for a reliable income investment to buy and hold for the long term as it has a strong brand and diverse global operations.
2. McDonald's
Fast food stock McDonald's offers a slightly higher yield at 2.7%. And its track record for dividend growth is even more impressive. Earlier this month the company announced it was increasing its payouts by 10%.
The increase marks the 47th consecutive year that the company has been raised its dividend payments. If it increases its dividend for three more years, it will become a Dividend King, joining the ranks of some of the safest and most stable dividend stocks in the world.
McDonald's has proven to be a resilient stock to own over the years, as the pricing power it possesses shows investors that it can manage varying economic challenges, including inflation. The company has been able to rely on price increases to offset rising costs, and that hasn't hurt its financials.
In its most recent earnings report for the period ending June 30, McDonald's reported comparable sales growth of 11.7%, with double-digit growth in both international and domestic markets. It's an impressive accomplishment -- many food businesses these days would be happy with single-digit growth, and McDonald's is delivering double digits at a time when consumers are supposedly struggling due to inflation. It's a testament to the strength of its brand.
At 55%, McDonald's has a modest payout ratio. And with its business still firing on all cylinders, it would be shocking if the dividend increases don't continue. This is a top dividend stock to buy and hold.
3. Fortis
The only non-food company on this list is Fortis. Fortis is a leading utility company, with operations in Canada, the U.S., and the Caribbean. The stock has an even better dividend, and an even more impressive track record, than the others on this list.
In September, the company announced a 4% increase in its dividend. And with the hike, its streak of increases has hit a remarkable 50 consecutive years. Although the rate of increase was relatively small, Fortis doesn't need to make big rate hikes, as its yield is already high at 4.3%.
Fortis is investing 25 billion Canadian dollars into its growth initiatives over the next five years, with a particular focus being on the U.S. Midwest market. It says its capital plan is "low risk and highly executable," with more than one-quarter of it devoted to cleaner energy initiatives.
The stock has a payout ratio of 75%, and with continued growth, Fortis anticipates that it will be able to continue increasing its dividend at a rate between 4% and 6% through 2028.
If you're a dividend investor, this is another solid dividend stock that can help diversify your portfolio while providing you with a steady stream of recurring cash flow.
